[USER]

My high interest savings account dropped the interest rate from 4.24 percent to 2 percent. In 2022, we (39f and husband 44m) purchased a short term vacation rental for $755k.

We stay in the property about 3 months per year and rent it out the rest of the time.

We took out a 30 year mortgage for $668k at 3.27 percent interest. Since then, we have paid that mortgage down to a remaining balance of $289k.

I had been storing $289k in the money market account because I felt that it served both the emotional security of feeling like we are debt free since we had the liquid money to pay off the mortgage if needed, but also had the added value of earning over 1 percent more than we were paying in interest.

With interest rates for savings accounts going down, it no longer makes sense to keep that money in the money market account because now we are paying over 1 percent more in interest than we are earning on the money.

My thought is that we can either just pay off the mortgage, put the money in our non-qualified brokerage account, or purchase a cash rental property with the money.

For context in case it’s relevant (if it’s not, just ignore this part), we currently have 5 paid-for long term rentals so adding another one would be easier than starting from scratch because we already have property management and systems in place.

Also for context in case it’s relevant, our total invested between real estate, the stock market and our two businesses is $2.86 million and we are debt free other than this short term rental mortgage.

So while this decision shouldn’t make or break our situation, I still want to fully think it through and try to make the decision that makes the most sense.

Any suggestions based on lived experience would be so helpful!

Thank you!

[Aaron]

To me paying off one rental vs buying a new rental cash don’t seem like very different decisions.

Personally I’m not into paying Down my rentals so I wouldn’t do either but basically it seems like the main decision is just if you wanna own more real estate asset value over the next x many years or not.

Usually if someone thinks there will be growth in value and rents they’d say yes but the same thought proccess would usually mean you would use more debt and you don’t wanna do that so idk if that appeals to you or not.

Either way seems like a low risk low impact decision.

Good luck!

[Mark]

Money market account and Money market fund are different

[Eric]

The question is, security vs return. You can potentially put the money into an investment that will generate a higher return (e.g. dividend stocks, CD, etc.), but it carries with it the risk of the underlying asset decreasing in price proportional to the risk.

The question truly is, what do you want out of the situation?

Once you know if you want higher returns and higher risk, or if you want the security of a paid of property, you will know what to do with the cash.

[Curtis]

I would advise not to pay off a 3.27% interest rate, your borrowing money cheaper than the rate of inflation.

You could pay cash for another rental property and collect rents, invest in 5% treasury bonds, CDs or DCA into low cost index funds or dividend funds or buy gold, silver.. or stay liquid and buy on dips or when the 10 year crosses 5% vanguard money market account it still 4%, you don’t have to rush into a decision patience…

but paying off a 3% rate is exactly what the bank wants you to do so they can use it to make 10-15%

[Christopher]

My investor clients who do rentals even if they buy them cash they later refinance into a loan.

You can write off all that mortgage interest and keep using your money to buy more and more rentals.

[Jeremy]

Buying another long term rental vs paying off short term rental, I would pay off the short term.

Would probably generate more revenue.

[Tim]

Just get a moneymarket via Schwab well over 4% last I checked.

[Jason]

If you’re looking to put it in simply another HY savings account, it doesn’t matter where you put it as rates everywhere will start dropping soon.

If you want to preserve a higher APY and don’t need immediate access to those funds, you may want to consider a CD at a Credit Union or through your brokerage.

[Author]

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